US District Court in New York reviews AAA Appellate arbitral panel decision with the same deference as arbitral awards under the FAA

On February 14, 2019, in considering cross applications to vacate and confirm an arbitration award, the United States District Court, S.D. New York decided to grant the same deference to a decision made by an appellate arbitration panel as is given to an arbitral award under the Federal Arbitration Act ("FAA") (Hamilton v. Navient Solutions, LLC., No. 18 Civ. 5432 (PAC) (S.D.N.Y. February 14, 2019).[1]

BACKGROUND

In 2007, Ms. Lucin Hamilton ("Hamilton") signed a student loan application and a promissory note per which she had given her consent to receive calls from collection companies such as Navient Solutions, LLC ("Navient") in relation to the loan, including through the use of "automated telephone dialling equipment or an artificial or pre-recorded voice message".

The student loan agreement contained an arbitration clause providing for AAA arbitration, with reference to the application of the AAA's Optional Appellate Arbitration Rules.[2] The arbitration agreement provided, in the relevant part, as follows:

Any court with jurisdiction may enter judgment upon the arbitrator's award. The arbitrator's award will be final and binding, except for: (1) any appeal right under the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. (the "FAA"); and (2) Claims involving more than $50,000. For Claims involving more than $50,000, any party may appeal the award to a three-arbitrator panel appointed by the Administrator, which will reconsider de novo any aspect of the initial award that is appealed. The panel's decision will be final and binding, except for any appeal right under the FAA…

Hamilton's loan payments were declared in default as of November 30, 2016, and Navient started contacting Hamilton through the use of automatic telephonic dialling system ("ATDS" or "autodialer"). After numerous calls by Navient through ATDS, Hamilton entered in contact with Navient's agents in order to revoke her consent to receive the calls. Navient, however, did not stop the calls.

In accordance with the terms of the arbitration agreement, in October 2016, Hamilton commenced arbitration against Navient arguing the calls were a form of harassment and in violation of the Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227, which restricts use of ATDS and other types of electronic messaging.[3]

During the arbitration proceedings, the following facts were established as uncontroversial:

9. On April 21, 2016, Ms. Hamilton instructed one of [Navient's] call-centre agents to stop calling her on her cellular telephone. She was advised that she would be "taken off the autodialer."
10. On April 21, 2016, NSL's call-centre agent updated [Navient's] system of record to update Ms. Hamilton's autodial consent permission from "Y" to "N."
11. After the conversation on April 21, 2016 [Navient] no longer possessed Ms. Hamilton's consent to place calls to her cellular telephone using an automatic telephone dialling system.
12. NSL called Ms. Hamilton's cellular telephone number two hundred thirty-seven (237) times after April 21, 2016.

After the close of the hearing, but before the issuance of the award, on June 22, 2017, the Second Circuit, in Reyes v. Lincoln Automotive Financial Services, 861 F.3d 51 (2d Cir. 2017), recognized that the TCPA does not permit parties to unilaterally revoke bargained-for consent to use an ATDS to contact them.

In light of Reyes, Navient requested the arbitration record be reopened so the sole arbitrator considered the effect of that decision over Hamilton's case. On June 27, 2017, however, the sole arbitrator refused to reopen the record to consider the effect of Reyes, stating that the parties had established that Hamilton's consent was indeed revoked. On June 28, 2017, the arbitrator issued an award in favour of Hamilton, ordering Navient to pay damages in the amount of $103,487.28.

Relying on the AAA Optional Appellate Procedure rules, Navient appealed the arbitrator's decision to a three-judge arbitration panel.

The arbitration panel issued a final award on March 19, 2018, finding that under Reyes, Hamilton's "consent was not revocable, and her withdrawal of consent was null and void," reversing and vacating the portion of the initial award ruling in Hamilton's favour, and affirming the initial award ruling in favour of Navient the outstanding balance of the Loan — $12,512.72.

Hamilton sought to vacate the decision of the appellate arbitration panel, on grounds of excess of power in violation of the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 10(a). Hamilton argued that the appellate arbitration panel could not make new factual determinations on appeal that were against the stipulations made by the parties in the original proceedings. Naturally, Navient countered Hamilton's application for vacatur and cross-moved to confirm the award pursuant to 9 U.S.C. § 9 of the FAA.

THE COURT'S DECISION

Judge Paul Crotty of the U.S. District Court for the Southern District of New York considered the question of whether Ms. Hamilton could unilaterally revoke her bargained-for consent a legal one, not subject to factual determination by the parties.

In contrast to Hamilton's allegations, the Court noted that:

While Ms. Hamilton may not have presented evidence concerning her consent to be contacted by an ATDS at the initial arbitration hearing because of this factual stipulation, the appellate arbitration panel did not exceed its powers, show manifest disregard for the law, or otherwise violate 9 U.S.C. § 10(a) in considering Reyes and holding that Hamilton could not unilaterally revoke her consent.

Consequently, the Court agreed with Navient, confirming the decision rendered by the appellate arbitration panel and ordering Hamilton to pay the outstanding amount of the loan for $12,512.72.

COMMENT

This case demonstrates the way in which an award rendered by an appellate arbitration panel is no different than an arbitration award for judicial review purposes. The US District Court of New York applied the narrowly limited grounds for reviewing an arbitral award provided in the FAA even though the original decision was altered by the appellate arbitration panel. Equally important in this decision is the enforcement of the AAA's Optional Appellate Arbitration Rules, which empowered the arbitral panel to review the award in a final and binding form. Accordingly, parties considering a challenge to an appellate arbitration panel award need to be aware that these decisions might be subject to the same amount of deference as provided under the FAA to arbitral awards.

[1]        Hamilton v. Navient Solutions, LLC., No. 18 Civ. 5432 (PAC) (S.D.N.Y. February 14, 2019), available at  https://www.transnational-dispute-management.com/legal-and-regulatory-detail.asp?key=21638 (subscription required).

[2] https://www.adr.org/sites/default/files/AAA%20ICDR%20Optional%20Appellate%20Arbitration%20Rules.pdf

[3]        https://transition.fcc.gov/cgb/policy/TCPA-Rules.pdf

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